When you obtain a student loan, it is important to read the contract and understand the terms used in it. This type of paperwork can be confusing, so don’t be afraid to ask questions if you don’t understand certain provisions in the promissory note. One term you may not be familiar with is “capitalization.”
Capitalization refers to the process by which your unpaid interest that has accrued is added to the principal amount of your loan. This can substantially increase the amount of your student loan. As interest is added to the balance of your loan, and it increases, the amount of interest you must pay over the life of your loan also increases. It is critical to read the contract with your student loan lender to determine if capitalization will be applied to your loan. If so, you must understand how often the unpaid interest will be added to the outstanding balance of your loan.
Every lender applies capitalization differently. If you do not understand how it works with your loan, you should have your lender explain it to you. Capitalization can occur throughout your repayment term or as a result of (i) a single, defined event, (ii) after a period of deferment or forbearance, or (iii) according to a scheduled plan, such as one time yearly.
When it comes to interest, you should also understand whether your loan is subsidized or unsubsidized. When your loan is unsubsidized, it means that you are liable to pay the accrued interest during deferment. When your loan is subsidized, the federal government is obligated to pay the interest during deferment and/or forbearance.
There are many complex and confusing contractual terms involved in student loans, so it is important to obtain the assistance of an experienced attorney to help you understand what your loan agreement provides. We can also help you with obtaining deferment, forbearance, or even forgiveness of your student loans. We are here to help you with all aspects of your student loans.
The “defender of the little guy,” DeLadurantey Law Office, LLC. handles student loan debt and bankruptcy matters (Chapter 7 and Chapter 13) in Milwaukee, South Milwaukee, West Milwaukee, and Milwaukee County, including the municipalities of Bayside, Brown Deer, Cudahy, Fox Point, Franklin, Glendale, Greendale, Greenfield, Hales Corners, Oak Creek, River Hills, Shorewood, St. Francis, Wauwatosa, West Allis, and Whitefish Bay. The firm also can handle your debt negotiations, debt relief, and mortgage loan modifications. Contact DeLadurantey Law Office, LLC by phone: (414) 377-0518. Like us on Facebook.